Creating Strategic Value through Financial Technology

CHAPTER 5The Alternative Lending Niche

Providing loans to borrowers is at the center of services that banks offer to customers and a key driver of bank health and profitability. Lending is also a key element to assess when determining the value of a bank as trends related to the loan portfolio such as growth outlook, credit quality, concentration risks, yields, and margins can all significantly impact profitability, health, and valuation of a bank. An assessment of the loan portfolio is even more critical for community banks, which are more dependent upon spread income than their larger brethren.

While lending is vital to community banks, community banks face intense competition from both larger banks and non‐bank lenders—several of which utilize alternative lending models that rely heavily on technology and FinTech innovations. Consequently, developing digital lending operations is paramount for community banks. Many are successfully developing online loan platforms to either enhance the efficiency and profitability of their existing lending operations or expand into new alternative lending models. To understand the growth of non‐bank lenders in recent history and provide a deeper perspective on the market share being lost to these non‐bank lenders, let's take a closer look at the rise of non‐bank lenders in the mortgage and consumer lending markets and analyze alternative lending trends that we expect will impact banks for years to come.

THE MORTGAGE MARKET

Before the peak ...